Electronics Production | December 16, 2007

Flex-Solectron merger done in only six months

The Street magazine thought the Solectron Flextronics integration process would take 18 months to 24 months. It is actually going to take only six months now. That means cost savings will come much faster than expected.
According to Jim Cramer, presenter at US TV Channel CNBC, an integration process that the Street thought would take 18 months to 24 months is going to take only six now. That means cost savings will come much faster than expected, and analysts will have to revise their earnings estimates upward to accommodate. Cramer called this a “classic great acquisition story where the estimates are too low,” and that usually means big gains for investors.

The problem, according to Cramer, has been that the EMS sector is full of competitors cutting prices to best each other, leaving the customers to play one company off another. But with Flextronics’ purchase of rival Solectron, this EMS companies might have set the stage to turn its entire dismal industry into a force to be reckoned with.

The deal put Flextronics behind Hon Hai (Foxconn). So now, according to Jim Cramer, the rest of the industry will have to consolidate in order to compete with these two top players. This wave of mergers and buyouts should give EMS businesses much more pricing power.


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